INLAND EMPIRE, CA—Orange County-based Brian Parno of Stirling Capital Investments exclusively told GlobeSt.com that the main challenges emerging at this time are found in the entitlement and planning side of the business in the Inland Empire region. Read below to hear more on what is expected for the region.
GlobeSt.com: Your firm is highly active in the Inland Empire industrial market through your Global Access Victorville project. How do you feel the Inland Empire market will fare this year in comparison to others?
Brian Parno: It looks like the overall IE market will enjoy a good steady year, absorbing most of the newly constructed product, despite a high level of new development activity at present. In comparison to other US markets, the IE will continue to be a very sought after location and produce strong results in both investment activity and leasing velocity.
For 2014, I do not anticipate the overall economy performing at a level high enough to instill the strong sense of confidence required to trigger an aggressive jump in lease rates. Personally I think we will see lease rates flatten a bit (though not decline) this year, which is a different perspective from some of the projections currently being quoted.
GlobeSt.com: What type of companies are located, or considering location, in the Inland Empire and why?
Parno: The Inland Empire still attracts a wide variety of industrial users, most of which are either using the L.A. based ports as a resource for imports and distribution, or just serving the local Southern California consumer. The L.A. basin remains a huge opportunity for corporations who want exposure to nearly 20 million people within a few hours’ drive time. And while the IE is primarily a logistics based market, we are witnessing the return of some manufacturing, which is a positive development for the regional and US economies.
GlobeSt.com: Have demands of industrial tenants changed? What are they looking for today in a facility?
Parno: More and more, tenants are looking for increased flexibility and ways to continually drive down their cost model. Their world is changing fast as e-commerce evolves, and we sense that means, for the developer, keeping all options open in terms of building use, physical features in size or adaptability, parking and loading, site density, etc. But in addition, we are seeing a higher focus from tenants on location strategy, with users honing in on micro logistics patterns that may be exploited to drive increased value through their particular product offering. Increasingly, and especially with e-commerce, the term “product offering” is being expanded to include the delivery time and cost, not simply the actual product, since consumers view their purchase as a whole transaction. So facility location needs to support the product offering value model.
GlobeSt.com: Where do you feel the opportunities and challenges lie for industrial real estate in the coming year?
Parno: I believe the main challenges emerging at this time are found in the entitlement and planning side of the business. The time frame to go from a raw land acquisition to a finished, leased building has grown dramatically as we struggle with growth in the face of environmental issues. Associated with that, the risk for the developer has therefore increased. That risk will likely put upward price pressure on the delivery of the finished product over time. From the tenant side, the front-end development risk results in occupancy date uncertainty unless there is standing inventory available. The business has just become more complex!
GlobeSt.com: Is Stirling planning any additional industrial activity in the Inland Empire?
Parno: We will continue to focus on serving our existing customers, and offering cost effective solutions to assist them with their growing real estate needs.